Department of the Treasury

Office of Thrift Supervision

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November 26,1996 Number: 161

On November 8, 1996, the Board of Governors of the Federal Reserve System (Board) adopted a final rule implementing a change to 12 CFR 215 (Regu- lation 0). Regulation 0 governs loans to executive officers, directors, and principal shareholders of member banks. The Office of Thrift Supervision has incorporated Regulation 0 by reference at 12 CFR 563.43. The provisions of Regulation 0, therefore, apply to a savings associations, its subsidiaries and insiders (directors, officers, and related interests) in the same manner and to the same extent as if the association were a bank and a member bank.

The final rule became effective on Novem- ber 8,1996. Attached is a copy of the full text of the change from the Federal Regkxer (Volume 61, No. 218, pp. 57769-57770, including a correction published on November 19, 1996 in Vol. 61, No. 224, p. 58782), which permits insiders of an in- stitution or its affiliates to obtain loans under com- pany-wide employee benefit plans. This amendment conforms the regulations to the Ec- onomic Growth and Regulatory Paperwork Re- duction Act of 1996 (EGRPRA). In this final rulemaking, the Board also simplified the pro-

cedure for an institution’s board of directors to ex- clude executive officers and directors of an affiliate from policymaking functions of the bank, and thereby from the restrictions of Regulation 0.

The Board also adopted a supplemental notice of pro- posed rulemaking on November 8, 1996 CFederalReg- IsterVolume 61, No. 218, pp. 57797-57799). The supple-mental rulemaking proposes to amend Regu- lation 0 by exempting executive officers or directors of the institution’s affiliates from the restrictions on extensions of credit if the following conditions exist:

l The individual is not engaged in major pol- icymaking functions of the institution; and

l The affiliate did not account for more than 10 per- cent of the consolidated assets of the institution’s holding company.

This supplemental proposal results from a recent change in the exemptive authority of the Board under the EGRPRA. Comments on this proposal are due to the Board by December 9, 1996. Questions may be directed to Donna Deale, Supervision Policy, (202) 906-7488 or Karen Osterloh, Regulations and Legisla- tion Division, Chief Counsel’s Office, (202) 906-6639.

Jo Executive Director, Supervision Office of Thrift Supervision

Attachment

Rules and Regulations

57709

Fatal it+ter

Vol. 61. No. 218

Friday. Nowmber 9. ,996

FEDERAL REgERVE SYSlEM

12 CFU Pmt 215

AaEN9vz Board of Gevanon of the F&ml R-0 Syaem.

Aclmw Find rule.

WMMMY: The Bo& is amending its Uon

T 0. which iJmtts how much

an rmwbattennsabmknuylendto itaawninside~and~d9n0fitr a5iiates. in order to permit insiden of a bank and of the barzs amum to obtain loans under company-wide wployw bmeet plan& This amepdmenc ConformS tba regulaUw to the Economic Grow-& and Regulatory Pafmwork Reduction Act of 10%. which was recently passed by Congrash CurnnUy. par&i prohibited when oas under such plans P

ation In such plans is

are on terms “at avaiJabie to the general public

The Board also is unending ReguMion 0 to sim itfy the procedure forabsnk’sbonrdo dJmctomt0 P exclude execuUv. of5cen md diractozs of UL amhe fmm pdicymawng functions of the bank. and thereby 5um the restrictionr of RBgulation 0.

EFFECWE OATIZ November 4.1996.

FOR FtJRlt46R INFORMATIO(( CONTAm Grcqty Beer. Mans& Senior cOtmee1 ~2~452-3236). ort%rchMlller. Attorney (202/452-25341. Lagal Dtvision. Board of Govemon of the Fed04 Rosewe System For the haring JmpaJmd onJy. Tdecormn uIdcaticms Dovim for the Deaf IlnDD). Domthm Thompson (202/452d5441.

5uPPLE3t6NlAN” YFDNMAnDNt

gackgmnnd

Section 22(h) of the Federal Resew% Act restvicts budder lending by banks. and Reguiatton 0 Jmplements sectton 22(h). 12 U..%C. 375b: 12 CFR Part 225. Rnguhtion 0 impwe qwnutattve hnitl on loam to insiden and rqIims that such loam not be on “pnferenw t-t is, on the same terma a plrnon not afmiated with the bank wrmld mceive. 12 CPR 215.4la). For tJUs purpose. an “intider” means an -tiva of5oK dtmctor. a* prtncipai shamholder. and loam to an insider include loam to any “r&ted interest” of the insider. including my compa.ny contmlied by the insider. 12 CFR 215.2&.). section 22(b) also restvicts landing to J&den of II bank’s parent bank holding company and any other subddiary of that bank holding mmpany. 12 USC 22fh,(tl,.

Widely Availabia Bme5t Piann

On September 30.1996. in the Eoonomic Growth and Raguimory F’apework ReductJon Act of 1996 0.’ Ccmgsw amendud the pmfenmtJa1 landing pmhibiUon of sectton ZZfbl(2) by adding M exceptron far extensions of credit made pursuant to a program that is widely avaiJable to ail employeea of the lending bank and does not givepnferenm to insiders over other employsss The amsndment to aaction 22(h) was effective September 30.1996.

Previously. seaJon 22(h)(21 pmhibited insider8 kom participating in programs ave.Jlable to all other mnployeas of a laling bank. such as a mductJon or waiver of closing costs for home mortgage 10~~. baause members of the general public - not enUU9d to obtatn credit on the rams terms. The lettkl&ive hismy of EGRPRA indice.tes thet Caqmss amended section 22(h) bemuse partJcipatJon by insiders in programs as descdbsd above would not aKwt any of the core rsatrJctiona on inrider lending under the statute.* In other words. paticipation by an insida in a

P Jan that is widely available to

emp oyees of a bank would not constitute abue of tba iwid&s position and would not substantiaJly contribute

11 u 0 a concentration of credit among ntiders.

The Board is ame.nding RegtiUon 0 o conform to the amendmmd in xaF%A. Conristent with reatmr !zfhlle). tbe amendment also expnuly nciudsr loawto insiders of an dfiiiate II tlw new excopUoll.’

Wusion of Insiders of Afpliates From PoucpllddngotoBank

The Batad prwioualy published for ?uhiic comment a propomi to simplify Ihe mquimmenta for board of dimcton utton to exclude an executive ofEar of m af5iiate from partJdpettng h major

licylMking functions of the landing I&k 4 curtmnuy, in order to be exempt from fuguiatJon 0. an -tJve officnr must be sxciuded by rw~iution of the board of dimeton of both the lending bank and tbs af5liatn for which the ~tiv(~ 0mm WON. 12 ax 215.2(e1(21~11. Beauna a bank has fiU1 amtral over who partidpatas in its poltcymaking. however. the Baud pmpuwid that ,C+l’kiB. bcud mso1utic.n of the af5itate in addltton to . board msolutton of the 1aiJng bank wu supafluaus and unduly burdensome. Forty-four public ammenta were remived on the propoe& of which 18 gewrdiy supported the simpiJ5catton oftbe msoiution requimmarlta. with no comments oppossd. Acmrdingly. thn Bcwd is delellng this requtrernent from tha eating exception for axecuttve 0mmn 0f dtiiia98. &~9~;~~~~~$W& ais0

mquimmsnts be fwthsr simpJi5ed by ~Ungabnnktoadopta~lu~on

tmg by nmne or UtJe only the meaden of the bank and its af5iJates who am authorized to participate in major poiicymakJng funcUonr of ths bank and ganeIaily excluding ail otbfa penrms from partidpaUon. curnnuy. the tvgld.aion requires the executive of5cw tabeexciu&dbynameortiti9fmm parttdpating in such functions. 12 CFR 215.21e)(2)[1). Because II bank’s board of